GST Council approves hike in luxury car cess

Several carmakers had cut prices after GST rollout to pass on benefits to buyers. However, some of them had to raise prices after cess was imposed on them.Deepshikha Sikarwar | ET Bureau | August 07, 2017, 07:15 IST

The cess on mid-size, large cars or SUVs is 15%, which added up to a reduction in levies on some models under the GST regime.NEW DELHI: Thinking of buying an SUV or a luxury sedan? You might want to hurry up and decide quickly as the Goods and Services Tax Council is said to have decided to raise the cess on luxury automobiles to 25% from 15% now.

To be sure, the rates may not go up immediately as any increase in the cess will require an amendment to the GST compensation law.

“The council approved an amendment to the GST law to enable an increase in the rate of levy of compensation cess,” said a government official aware of the council’s deliberations on Saturday.

The overall view within the council was to have the cess on high-end automobiles pegged higher so that it can be increased if the need arises, the official added.

Cars have been placed in the highest 28% tax bracket under GST, which has replaced 17 state and central taxes as also 23 cesses. It should be noted that the GST Council has already set the maximum levy inclusive of cess at 40%.

Small petrol cars of 4 metres length and up to 1,200 cc engine capacity attract a 1% cess while diesel cars of that length and up to 1,500 cc capacity face a 3% cess.

The cess on mid-size, large cars or SUVs is 15%, which added up to a reduction in levies on some models under the GST regime.

A number of car makers had cut prices after the rollout of GST on July 1 to pass on the reduction to buyers. However, some car makers had to raise prices of small cars after the cess was imposed on them.

The government maintains that industry stands to benefit from seamless input tax credit and should help reduce prices overall.

The Centre introduced a separate GST (Compensation to the States for Loss of Revenue) Bill, 2016, for the imposition of a cess on certain luxury goods and so-called sin goods to compensate states for any loss of revenue due to the implementation of GST.

A provision to compensate states was also made in the constitutional amendment that makes it mandatory for the Centre to provide for compensation to the states for loss of revenue arising on account of implementation of the GST for a period of five years.

In fact, segment leaders like Maruti Suzuki, Tata Motors and Hero MotoCorp have reported de-growth of 34.3 per cent, 45 per cent and 20 per cent, respectively giving a clear indication of a prolonged slowdown in the sector.